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CurAlea Associates LLC is an independent risk and due diligence advisory firm focused on hedge funds and family offices.

Monday, May 2, 2016

April 2016 - Monthly Market Commentary

April was a solid month for global risk assets.  Global equities continued to rally, the US Dollar weakened, commodities moved higher, credit spreads continued to grind lower, and the US interest rate curve was little changed.  At its April meeting, the Federal Reserve left interest rates unchanged and indicated that it was in no rush to raise rates at its next meeting in June.  The ECB also left rates unchanged at its April meeting, and indicated that rates would remain at current or lower levels for an extended period.  US GDP growth slowed to 0.5% in the first quarter, as global headwinds and market volatility negatively impacted the US expansion.  The Eurozone economy, meanwhile, grew at a 2.2% annualized pace in the first quarter, while China reported 6.7% growth.  The US job report showed 215,000 jobs were added in March, while the unemployment rate ticked higher to 5% and the labor force participation rate moved higher to 63%. 
Notable corporate transactions announced in April included the $2.6 billion acquisition of Virgin America by Alaska Air Group, Gilead Sciences’ acquisition of Nimbus Apollo for $400 million plus up to $800 million in additional payments, Glencore’s sale of 40% of its agricultural business to CPPIB for $2.5 billion, Brocade’s $1.2 billion purchase of Ruckus Wireless, the $1 billion investment in Lazada Group by Alibaba Group, the $1.25 billion investment in Ele.me by Alibaba Group and Ant Financial, the $2.9 billion purchase of Anheuser-Busch InBev’s Peroni and Grolsch brands by Asahi Group, the $3.6 billion acquisition of Lexmark by Apex Technology and PAG Asia Capital, the $710 million purchase of Safran’s Morpho Detection unit by the Smiths Group, Abbott Laboratories’ $25 billion acquisition of St. Jude Medical, and Comcast’s $3.8 billion purchase of DreamWorks Animation.
Developed market equity markets were mostly higher in April (see page 8) led by Spain (+4.6%), Australia (+3.7%), and Canada (+3.3%).  US small caps outperformed large caps, with the Russell 2000 up 1.6% and the S&P 500 up 0.4% (see page 2).  Energy (+8.7%), Materials (+4.9%), and Financials (+3.4%), were the best performing sectors in April, while IT (-5.4%), Utilities (-2.4%), and Telecom (-2.1%) were the worst performing (see page 2).  Large cap value (+2.1%) outperformed large cap growth (-0.9%) in April (see page 3).  Emerging Market equities were mixed in April (see page 9), with the biggest gains in Brazil (+7.5%), Russia (+4.9%), and Argentina (+4%); Taiwan (-5.1%), Malaysia (-2.4%), and Indonesia (-1.7%) were the worst performing. 
In currencies, the USD Index weakened 1.6% in April (see page 10).  The strongest developed market currencies against the USD were the Japanese Yen (+5.9%), Canadian Dollar (+3.6%), and Norwegian Krone (+2.7%); the Australian Dollar weakened -0.7% against the USD.  The USD was mixed against emerging market currencies with the biggest gains seen by the Brazilian Real (+4.6%), South African Rand (+3.8%), and Russian Ruble (+3.5%); the biggest losses against the USD were seen by the Malaysian Ringgit (-0.8%), Indonesian Rupiah (-0.5%), and Chinese Yuan (-0.4%) (see page 10).
The US Treasury yield curve was little changed in April (see page 12).  10 year rates closed the month at 1.83%, up slightly from 1.77% at March month end.  Investment grade and high yield credit spreads tightened in April (see page 13).
In commodities, the GSCI index was up 10.1% in April (see page 11), with gains in Energy (+15.1%), Industrial Metals (+7.2%), Agriculture (+6.6%), and Precious Metals (+5.6%) and losses in Livestock (-5%).  Within individual commodities, Brent Crude (+17.3%), Crude Oil (+16.1%), and Heating Oil (+15.9%) saw the biggest gains, while Feeder Cattle (-10.2%), Live Cattle (-7.3%), and Coffee (-6.1%) saw the biggest losses.  Gold was up 4.5% in April.

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